In this guide
We all love making a profit on our investments, but no one enjoys the tax liability that comes with a windfall.
The good news is that making a super contribution could reduce your tax bill and give your retirement savings a welcome boost at the same time.
How capital gains are taxed
When you sell an asset for more than you paid for it, the profit is called a capital gain. If the asset was held for longer than 12 months, discount rules mean that only 50% of the gain needs to be declared on your tax return.
Taxable capital gains are added to your income and taxed along with the rest of your earnings at normal marginal income tax rates.
We often call this Capital Gains Tax (CGT), even though it is not a separate tax.
Example: Wan
Wan invested $40,000 in an exchange-traded fund (ETF) in January 2018. She sold her holdings in October 2023 for $50,000 – a gain of $10,000.
As she held the investment for longer than 12 months, Wan needs to declare a capital gain of $5,000 (50% of the profit) in her 2023–24 tax return.
Reducing CGT with personal deductible contributions
Making a tax-deductible super contribution reduces your taxable income and can assist to minimise the impact of tax on capital gains if you contribute to super in the same financial year that you make a capital gain.
It is important to remember that deductible contributions to super are taxed at the rate of 15%, or 30% if your income plus low-tax super contributions is above $250,000 for the year (Division 293 tax). To make a saving, the tax rate you pay on super contributions must be below the rate of income tax you would otherwise pay on the capital gain.
If you’re between 18 and 67, you can make personal deductible contributions. If you’re under 18, deductible contributions are permitted if you also earned income as an employee or business operator during the year. If you’re aged 67–75 they are permitted if you meet the work test.
Learn more about Division 293 tax and tax-deductible super contributions.
